The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 6.5 points down at 7:00 am.
New York: Wall Street rebounded amid encouraging developments in Greece and upbeat news from the domestic economy. The S&P 500 advanced 1.2%, primarily led by the information technology sector.
Asia: Markets tracked the global indices to trade higher today. The Nikkei 225 added 1.7% by close as the yen weakened 0.3% against the US dollar in the morning trade. The Hang Seng was trading 0.7% up at 7:00 am.
Continental Europe: Equities snapped their losing streak to close higher on expectations of further assistance to Greece. Reports emerged that Germany may offer a staggered deal to Greece on the bailout aid. Germany’s DAX and France’s CAC 40 rose 2.4% and 1.8%, respectively.
Crude Oil: Yesterday, the prices of WTI and Brent Crude Oil climbed 2.1% and 1.3% respectively. The spread between the two varieties stood at US$4.3 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.21% higher yesterday at 773.73.
Today’s news
House price balance in UK rises in May: RICS
The Royal Institution of Chartered Surveyors (RICS) stated that the expectations for house prices rose to +34 in May, the highest since August 2014, from +32 in April. The gain was primarily ascribed to the absence of sellers in the market, with property availability per surveyor at its lowest since 1978, the release informed.
BoE unveils strict new market rules
The Bank of England (BoE) revealed a set of new rules to enhance individual responsibility among senior bank executives and hold them criminally liable for poor decisions. The potential jail term under the new rules would increase from seven years to 10 years. A Market Standards Board would be established to ensure adherence to the standards in fixed income, commodities and currencies.
Company News
MySQUAR – AIM IPO of a Myanmar-based Internet-build group, focussed on Mobile Social Media Services
You may have seen reference in the Financial Times and other press sources of this upcoming AIM IPO in which Beaufort is sole broker.
MySQUAR is a technology group focussed on internet-content build in Myanmar, a country which until recently had been effectively cut-off from the rest of the world. Its first main product now rapidly building users is ‘MyCHAT’, a free to use social media and mobile chat service. The Company has recognised that offering local language and locally-derived content is the best route to acquisition and retention of massed users still very new to the worldwide web. Within a short 15 months its services could be accessible by over 40m residents. MySQUAR is positioned to be the local platform of choice in what will shortly become Southeast Asia’s fastest growing online territory. The Company is expected to have over 1m users by the end of the year with rapid growth continuing into the foreseeable future. With users comes monetisation opportunities, including gaming, news, information, financial and payment services.
Should wish to have more information or are interested in getting involved, please contact your Beaufort Broker on 020 7382 8300 (London) or 0117 910 5500 (Bristol).
Motive Television (LON:MTV) – Speculative Buy
Yesterday, Motive Television (Motive), the provider of broadcasters and pay television operators with enabling technology, announced that the first TabletTV US and UK apps for Android devices are now available for download on the Google Play store. Users of the most popular Samsung Android tablets in these regions are now able to join those with iPads in being able to watch and record over-the-air television (Freeview in the UK) on their tablets in time for the Wimbledon tennis tournament. Initially the first Android TabletTV apps are available for Samsung 10 and 7-inch devices, with more coming later this year. The technology comprises a proprietary app and T-Pod antenna-tuner, that permits tablet owners around the globe to watch and record all the programming currently broadcast over digital terrestrial channels without the need for Internet access.
Our view: Motive’s latest announcement is important. Its patent-pending IP for TabletTV has just enlarged its potential target US and UK market of users by nearly 75%. This will expand significantly further as new regions and devices are added in the coming months and years. Given that the 2018 estimate of the total worldwide active tablet market is for 250m users (of which 60m will be in the USA), all of which are exposed to free-to-air television, this provides an insight into the potential for TabletTV. Indeed, the user is increasingly willing to view television on their tablets, with the total UK audience having grown to 17% by end-2014 (source: Mail Online), despite incurring the high cost of internet streaming. Understanding that free-to-air still accounts for over 60% of all TV-viewing segments, however, the user’s ability to watch their favoured channels for no cost (other than initial purchase) is clearly significant. Sufficient enough, perhaps, for some tablet manufacturers to consider pre-installing TabletTV’s app plus ‘built-in’ tuner in order to differentiate themselves from peers in an increasingly commoditised market. Such an agreement could generate large ongoing licensing fees for Motive which, given that the bulk of development costs have been paid for, would likely drop straight to the bottom line. The value of such opportunities, its IP, along with Motive’s other operations (such as ‘Bring Your Own Device’ technology for the maritime industry and Content Express), suggests the Group presently trades well below its realizable value. We retain our Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Motive Television Plc
AFC Energy (LON:AFC) – Speculative Buy
Yesterday, AFC Energy announced the receipt of the second and final Building Permit from the Stade building and urban development authorities in Lower Saxony, Germany. The permission would allow the construction of all above ground infrastructure including the industrial steel frame building to house the KORE fuel cell system, all storage tanks, piping, connection points and ancillary above ground equipment. The permit follows the First Partial Building Permit declared on 26th March 2015. The final building permit has afforded approvals to AFC’s Civil engineering drawings, plant specifications and process description of operations, and other relevant approvals from state of Saxony departments, among others.
Our view: The receipt of the final building permit from the urban development authorities is an important development for the company as it allows AFC Energy to conclude its construction activities over the next few weeks. The timely completion of the construction would put the company in the driver’s seat to deliver initial power generation from the KORE system in July 2015, for which the company has shown considerable discipline o honour the deadline. Recently, the company’s half yearly revenues nearly doubled in comparison to the previous year. As the company prepares for a successful demonstration of its KORE system in Germany, we remain confident that it has the capability to capitalize on the growing momentum. The joint venture in Korea and the collaboration with the ‘Bangkok Industrial Gas Company’ for the development of a 10MW fuel cell along with the agreement in Dubai were among the key advancements in the recent times. AFC has adopted a unique process to accelerate the maximum operating performance from a fuel cell by applying external heat sources to ascertain and maintain the best possible fuel cell operating temperature. The process enhances overall system efficiency in addition to lowering cost of fuel for the cell system. Therefore, in view of company’s special position in the low-cost alkaline fuel cell technology, we reiterate a Speculative Buy rating on the stock.
Enegi Oil (LON:ENEG) – Speculative Buy
Yesterday, Enegi Oil provided an update on the development of the Marginal Field Initiative by ABT Oil and Gas Ltd. (ABTOG), a joint venture with ABTechnology Ltd. AGR and Frames signed collaborative agreements ABTOG to join the Marginal Field Delivery Consortium that includes ABTOG, Kongsberg Maritime, Apollo and Braemar ACM. AGR is involved in delivering a variety of services related to exploration and drilling of wells and would design and deliver well engineering and well project management elements of marginal field development projects. On the other hand, Frames designs, delivers and constructs separation, treatment and control and monitoring systems, as well as total plant solutions and modules. Frames is already working closely with ABTOG and Kongsberg Maritime to design and deliver offshore process and utility systems that can be operated on a normally unattended basis. Additionally, discussions are underway to include further specialists to the Consortium, who can invest time and resources into securing future opportunities for the advancement of the Marginal Field Consortium and Initiative.
Our view: With the addition of AGR and Frames to the Consortium, ABTOG gets an interesting combination of experience and knowledge that is expected to augment its ability to deliver marginal field development projects. The oil industry is seeking new solutions to its challenges of reducing capital and operating expenses and converting the economics of undervalued assets into profitable ones. The consortium members have identified number of marginal field opportunities which meet the development criteria and may provide a coherent vision to transform these projects and deliver them on time and within budget. We see an exciting business opportunities in the time of depressed oil prices as the cost reduction becomes an important parameter. Thus we retain a Speculative Buy rating on the stock.
Weir Group (LON:WEIR) – Hold
Yesterday, Weir Group provided an overview of company’s current trading. The Minerals Division that contributes nearly half of the company’s revenues, continued to remain resilient despite challenging market conditions. In addition, the company confirmed the market conditions for its Minerals and Power & Industrial divisions were consistent with the Interim Management Statement published on 29th April 2015. Meanwhile, the Oil & Gas division continued to report reduced activity in April and May. Due to weak trading in the upstream businesses, the divisional order input was 34% lower for the first five months of the year. Pressure Pumping was impacted by customers destocking and transferring equipment from idle frac fleets instead of buying replacement components. In order to reduce costs, the Weir Group temporarily suspended operations for a week at its Fort Worth, Texas facility. The company expects a higher revenue weightage to the second half of the year in comparison to the previous years. On 30th July 2015, the company will publish its interim results, for the period to 3rd July 2015.
Our view: The reduced drilling and completion activity seem to have adversely impacted the prospects of the engineering company’s oil and gas divisions. The market has remained challenging and the firm struggled with its major business lines while issued a meek trading update. The company even suspended operations for a week at its facility in Fort Wort in a bid to reduce costs. Moreover, the company was forced to announce job cuts in April in view of the falling orders for its pumps and valves. Though the company expects the results to be more weighted in the second half, the performance in the first half does not give us the confidence that the company can cover up in the last six months especially when the market conditions continue to remain challenging. Thus in view of the changed market conditions, we downgrade the stock rating to a Hold for now.
Yesterday, Sainsbury issued its first quarter trading update for the 12 weeks to 6th June 2015. Total Retail sales excluding fuel for Q1 2015 declined 0.6% and were 2.3% lower including fuel. Like-for-like (LFL) retail sales for the period excluding fuel was down 2.1% and declined 3.7% including fuel. The trading was impacted by the strong levels of food deflation and a highly competitive pricing backdrop. To reinforce its quality credentials, the company would invest in the quality of 3,000 own-brand products as part of its Strategic Review. New products were introduced across several categories and the improvements were done to the seasonal fresh offer for the summer season. Sainsbury’s Bank opened its 182nd Travel Money Bureau and the Travel Money grew over 40%. The company opened 20 grocery Click & Collect sites and remains on track to have 100 sites by the end of 2015. The online Groceries recorded 256,000 orders for the quarter with increased the delivery slot options. During the quarter, three Argos digital stores were opened in North Cheam, Nantwich and West Hove and around ten are expected to be opened by the end of H1 2015. Meanwhile the number of convenience stores grew by ten for the quarter. Sainsbury plans to open its clothing line on a national level over the summer season. During the quarter, the company also opened its 300th petrol station, in Livingston. The company expects to capitalize on available growth opportunities and make progress with its future strategy.
Our view: Though Sainsbury reported an improvement in the product quality, higher value added to the customers and better volumes, these have come on the back of extensive price cuts that required huge investments from the company to ward off the intense price wars among the Big Four Supermarkets in the country. The deflated food and fuel prices further added to the woes of the company despite a rise in the real wages of the people in the UK. In the recent final year results, the company reported losses for the first time in ten years. The price cuts in such a competitive environment may serve a short term profit solution but is not a sustainable option. Agreed the company is making progress with its online groceries, online clothing and Travel money, but the success is still in the nascent stage and we would like to wait and watch the impact of these measures on the company’s long term outlook. Thus in view of the unfavourable external factors and persisting tough trading conditions, we maintain our Hold rating on the stock.
Boohoo.com (LON:BOO) – Hold
Yesterday, Boohoo.com provided a trading update for the three months ended 31st May 2015. Revenues grew 35% and 37% on constant currency to £41.3m for the period and the number of active customers improved 32% y-o-y to 3.3 million. Gross profit for the period stood at 60.6% with good response to the marketing campaign. Region wise, sales in the rest of the world jumped 66% followed by Rest of Europe and UK at 27% each. At the end of the period, the company’s cash balances stood at £58m.
Our view: During the period, the company witnessed a significant jump in the sales in the UK and the rest of the world over the comparative quarter in the previous year. The trading update testifies the company’s decent comeback following the profit warning issued by the company in the month of January when the heavy discounting and logistic problems over Christmas had severely impacted the retailer. Taking a cue, the company made significant investments to its warehouse extension and the enhanced website interface to provide seamless service to its customers. However, despite the turnaround in the company’s top line sales numbers, we would like to wait until we are sure whether it’s a temporary phase or a long-term trend. We therefore retain our Hold rating on the stock.
Economic News
UK industrial production
UK industrial production rose 0.4% m-o-m in April, after improving 0.5% in March, the Office for National Statistics reported yesterday. Markets had forecasted an improvement of 0.1% for the month. On y-o-y basis, growth in industrial production grew 1.2% in April from 0.7% in March, far exceeding the market forecast.
UK manufacturing production
The Office for National Statistics reported that the UK manufacturing output dropped 0.4% m-o-m in April after witnessing a similar rise in March. The reading was below the consensus estimate of a 0.1% increase. On y-o-y basis, manufacturing output expanded 0.2%, vis-à-vis the expected rise of 0.4%, after registering a growth of 1.1% in March.
US MBA mortgage applications
Applications for US home mortgages climbed 8.4% in the week ended 5th June, following the preceding week’s 7.6% decline, the Mortgage Bankers Association said yesterday. The seasonally adjusted index of refinancing applications rose 7.0%, while the index of loan requests for home purchases, a key gauge for home sales, jumped 9.7%